TORONTO, Oct 14 (Reuters) - The Canadian dollar rose versus
the U.S. dollar on Tuesday as easing worries of a global
recession, coupled with higher commodity prices, allowed it to
recoup a chunk of the massive losses it recorded last week.

Canadian bond prices, with no Canadian economic data to
consider, were down across the curve as the S&P/TSX composite
index .GSPTSE shot 18 percent higher at the open on news of a
rescue plan for U.S. banks.

At 9:55 a.m. (1355 GMT), the Canadian unit was at C$1.1460
to the U.S. dollar, or 87.26 U.S. cents, up from C$1.1808, or
84.69 U.S. cents, at Friday's close. The Bank of Canada did not
provide a closing level for the currency on Monday because it
was the Thanksgiving Day holiday in Canada.

The rally in the Canadian dollar, the bulk of which
occurred on Monday, lifted it comfortably off the 82.41 U.S.
cent level that it tumbled to on Friday, which marked the
currency's lowest level in more than three years.

"But over the weekend, rightly or wrongly, the market
seemed to be under the view that we finally have had the
dramatic move which has helped dissipate the fear that the
global financial sector was going to implode and take the
global economy with it."

Helping to boost market sentiment was news that the U.S.
Treasury Department will inject $250 billion of capital in
major U.S. banks to help stabilize the financial system and
unfreeze lending.

But despite the turnaround in market sentiment, Watt said
the global economy still faces an intense challenge going
forward, However, he added that worst-case scenarios seem to be
off the table and that has allowed a number of currencies to
erase what he called "irrational" selloffs last week.

The Canadian dollar fell 8.4 percent last week as fears of
a global recession and dropping demand hammered commodity
prices. But commodities turned around at the start of this
week, which is a positive for the Canadian dollar since Canada
is the biggest supplier of oil to the United States, and
commodities make up around half of Canadian exports.

BONDS PINNED LOWER

Canadian bond prices were down as investors raced back into
Canadian equity markets to play catch-up with the Dow Jones
industrial average .DJI and the Standard & Poor's 500 Index
.SPX, which each surged in the previous session while
Canada's stock market was closed for the Thanksgiving Day
holiday.

The Toronto Stock Exchange's main index jumped 18 percent
at the open on Tuesday in a broad-based rally that erased last
week's 16-percent slide in a matter of minutes.

Michael Gregory, senior economist at BMO Capital Markets,
said the sliding U.S. bond market, coordinated efforts from
central banks to expand liquidity and the rebound in the stock
market all contributed to the slide in bond prices.

"We've taken a step back from the precipice," said Gregory.
"I think bonds will revisit some lower levels."

Earlier on Tuesday, the Bank of Canada announced a series
of "exceptional liquidity" measures to shore up the Canadian
financial system and said it could take more steps if needed.

The bank said it would offer C$10 billion in liquidity to
money markets on Oct. 15 through a deal to buy securities and
then resell them 27 days later.

The Canadian overnight Libor rate LIBOR01 was 3.625
percent, down from 3.725 percent on Friday.

Friday's CORRA rate CORRA= was 2.5042 percent, up from
2.5026 percent on Thursday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.

The two-year bond was down 21 Canadian cents at C$100.90 to
yield 2.313 percent. The 10-year bond slid 33 Canadian cents to
C$103.37 to yield 3.827 percent.

The yield spread between the two-year and the 10-year bond
moved to 119 basis points from 128 basis points at the previous
close.

The 30-year bond dropped 70 Canadian cents to C$111.50 to
yield 4.297 percent. In the United States, the 30-year Treasury
yielded 4.262 percent.
(Editing by Peter Galloway)